What a Difference a Year Can Make in the Market

The Weekly Recap

Happy Super Bowl Weekend! Jerome Powell said the Fed is wary of cutting rates too soon, mortgage rates continue to remain flat. US CPI revisions are due and normally ignored, a repeat surprise may have important implications for the Fed. Manhattan apartment leases surged and prices rose in January, Apple launched their Vision Pro, the S&P 500 is knocking on the door of hitting 5000, NYC considers a crackdown on laundry pods and Adam Neumann tries to buy WeWork with rescue capital, a company that he drove into the ground.

Also, check out this article from SoFi explaining the Mortgage Interest Deduction.

What a Difference a Year Can Make in the Market

The real estate market, especially in New York City, has picked up immensely since the beginning of the year with pent up activity and demand forcing buyers to make fast decisions. Whether a home has been on the market 10 days or 100 days, renewed interest is breathing new life into old inventory. Here is a review of where we are today in various segments versus’ this time last year:

Mortgage Rates

February 2023:

• The average 30-year-fixed rate mortgage was at 6.48%, up almost one and a half points from 4.99% 3 months prior and then climbing all the way to almost 8% by November.

• Pre-approval demand was at the lowest they’d been in almost 20 years.

February 2024:

• Rates are eerily almost the exact same YoY with the 30-year fixed hovering at about 6.6% with the big differentiator being that rates are on the WAY DOWN versus going up.

• Although rates have not been cut, they have started moving down as the 10-year treasury yield rate has gone down.

Market Sentiment

February 2023:

• Rising rates forced first time homebuyers to stay on the sideline and remain in the rental market.

• Additional renters in a limited inventory market forced rental prices way high.

• Inventory plummeted as the delta between the interest rate where people bought and where they would sell kept them from putting their homes on the market.

February 2024:

• The market is excited, vibrant and moving!

• People who have been waiting for positive news have started coming off the sidelines and purchasing. Inventory remains flat but will be decreasing as more units get snatched up.

• Anecdotally, units are going into contract at a rate we have not seen in a very long time, quantifiable data will provide solid numbers in the coming weeks as units begin to close.

Position of the Federal Reserve

February 2023:

• The Fed was adamant about continuing to raise rates (known as quantitative tightening).

• Inflation was at 6.4% and trending down but WAY above the Fed’s 2% target goal for inflation.

• The Fed was raising rates anywhere between 25-50bps every single meeting to try to tame inflation.

February 2024:

• The Fed has signaled that they are no longer raising rates and that they are trying to strategically time when to best effectively reduce rates without increasing inflation.

• CPE Inflation is at 2.9%, the lowest in three years and much closer to the 2% target goal.

• Many believe quantitative easing (reducing rates) will occur end of Q2 2024 and that we will see 3-4 rates cuts in ‘24.

Buyers vs. Sellers

February 2023:

• With inventory rates low and even fewer buyers, anyone willing to buy in this market had a slight advantage over sellers.

• As the year wound down, the leverage shifted slightly to sellers who were priced right.

• Over 70% of all deals done in NYC last year were done all cash.

February 2024:

• Buyers are making headway, understanding that as rates drop, more buyers will enter the market and drive prices up as selling inventory will likely remain low until the end of 2024.

• We will see a market pivot from more of an equilibrium between buyers and sellers to more of a seller’s market.

• Sellers are gaining more leverage and still positioned that if they are priced correctly can sell within 45-60 days.

2023 was marred by uncertainty and high levels of inactivity as it was the slowest year for real estate since 1995. 2024 is all optimism. The supply of new buyers to the market will far exceed the supply of new inventory in the short term which will make prices rise due to more competition. It is always better to buy in a high rate environment with lower pricing than a low rate environment with higher pricing.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan. UrbanDigs now considers us to be in a SELLERS market.

Mortgage Rate Update

Mortgage rates remain stagnant, hovering in the mid-six percent range over the past several weeks. The economy and labor market remain strong with wage growth outpacing inflation, which is keeping consumer spending robust. A low supply of homes coupled with higher buyer demand continues to move prices upwards.

News You Can Use

• Powell Insists the Fed Will Move Carefully on Rate Cuts, With Probably Fewer Than the Market Expects CNBC

• Powell Tells ‘60 Minutes’ Fed Is Wary of Cutting Rates Too Soon Bloomberg

• US to Tackle Secrecy in All-Cash Home Purchases Wall Street Journal

• Indexes Finish Lower After Powell Says Caution on Rate Cuts Needed Wall Street Journal

• Why NYC Apartment Buildings Are on Sale Now for 50% Off Bloomberg

• Why Wall Street is Still Bullish on Stocks Even With March Rate Cut Hopes Dashed Yahoo Finance

• NYCB’s Credit Grade Is Cut to Junk By Moody’s Bloomberg

• Manhattan Apartment Leases Surge, Keeping Rents From Sliding Bloomberg

• NYC Is Considering a Laundry Pods Crackdown Bloomberg

The Deep Insight

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